By Alun John, Naomi Rovnick and Samuel Indyk
LONDON (Reuters) – The Bank of England capped a big year of central bank interest rate cuts on Thursday by holding rates steady, a day after the Federal Reserve eased policy but suggested it would be more cautious in 2025.
Seven of the ten major developed market central banks have cut rates this year, while only Australia and Norway have not yet cut rates. Japan, the outlier, is in hiking mode.
1/ SWITZERLAND
The Swiss National Bank, which has been at the forefront of monetary easing, last week cut interest rates by an unexpectedly large 50 basis points (bps) to 0.5%, the lowest since November 2022 and the bank’s biggest cut in almost a decade.
Swiss annual inflation was recently reported at just 0.7% and the SNB, alert to the strengthening of the Swiss franc’s safe haven above the level that domestic exporters can tolerate, said it would raise borrowing costs again next year can reduce.
2/ CANADA
The Bank of Canada also cut rates by 50 basis points to 3.25% last week, marking the first time it has made consecutive half-point cuts since the COVID-19 outbreak.
It indicated further easing would occur gradually after annual inflation accelerated to 2%, but with Canada’s weak economy threatened by newly-elected US President Donald Trump’s proposed tariffs, markets placed a 50% chance on a 25 basis point cut next month.
3/ SWEDEN
Sweden’s Riksbank cut rates by a quarter point to 2.5% on Thursday, in line with expectations, but signaled it may slow the pace of easing in early 2025 after 150 basis points of cuts so far this year.
The central bank said it favors a more cautious approach, noting that monetary policy affects the economy with a lag.
4/ NEW ZEALAND
New Zealand’s economy fell into recession in the third quarter, data showed on Thursday, a disastrous outcome that strengthens the case for more aggressive rate cuts.
The Reserve Bank of New Zealand meets again in February and the governor says there is room for a 50 basis point cut.
Rates have been cut 125 basis points so far this cycle to 4.25% and markets are pricing in another 100 basis points of cuts by the middle of next year.
5/ EURO ZONE
The ECB is firmly in easing mode. Last week she cut the deposit rate by 25 basis points to 3%, leaving the door open for further cuts.
It also indicated that further cuts are possible by removing the reference to keeping interest rates “sufficiently restrictive,” economic jargon for a level of borrowing costs that slows economic growth.
Markets are pricing in further tightening of around 110 basis points by the end of 2025.
6/ UNITED STATES
The Federal Reserve cut interest rates on Wednesday as expected, but Chairman Jerome Powell said further cuts in borrowing costs now depend on further progress in reducing stubbornly high inflation.
That shocked markets, sending stocks down sharply and bond yields higher as investors reversed expectations for rate cuts before 2025.
7/ GREAT BRITAIN
The Bank of England kept its key interest rate unchanged at 4.75% on Thursday, but policymakers became more divided over whether rate cuts were needed to tackle a slowing economy.
The softer tone led to a rally in British government bond prices, causing interest rates to fall. Still, markets estimate a less than 50% chance of a 25 basis point rate cut at the next BoE meeting in February.
8/ NORWAY
The Norwegian central bank kept its policy rate stable at a 16-year high of 4.5% on Thursday.
Looking ahead, Norges Bank believes that while restrictive policies are still necessary, the time for easing is approaching and it expects to start cutting funding costs in March next year.
9/ AUSTRALIA
The Reserve Bank of Australia held rates steady at a 12-year high of 4.35% last week but softened its tone on inflation, raising the market-implied probability of a quarter-point cut in February to more than 50 %.
The RBA, which has not changed borrowing costs for more than a year, has noted a surprising slowdown in economic growth as high interest rates discouraged households from spending despite a recent round of tax cuts.
10/ JAPAN
The Bank of Japan, the only G10 central bank in a cycle of rate hikes, kept rates unchanged on Thursday as expected, but markets seized on comments from Governor Kazuo Ueda suggesting the BOJ preferred to wait for payroll data from the spring before returning to action.
Investors had seen a January rate hike as likely, and their reassessment sent yen and bond yields tumbling.
(Reporting by Alun John, Samuel Indyk and Naomi Rovnick; Editing by Dhara Ranasinghe and Andrew Heavens)
